Credit and Finance Articles
Payday Loan – Is it a loan or a gift?
By: A Procos
The difference between a gift and a payday loan is that if you are given money, which legally does not have to be repaid, this is known as a gift. If a payday loan lender distributes the money to you with legal documentation, the money is considered a legal loan. Many cases have been taken in front of a judge to decide whether a financial transaction was a gift or loan.
Documentation and contracts are a very important part of any money deal even when obtaining private loans from relatives or friends. Most loans are administered by banks or other financial lending institutions. Specific criteria is adhered to, to establish if a borrower is eligible for a loan. Credit history is always highly considered for longer term loans as well as current income assets and liabilities. When applying for a payday loan, the purpose of the loan may also play a role in the decision making of the payday loan.
Another significant consideration is the income to debt ratio of the borrower. Are you able to pay back the loan with interest? Lenders essentially are in business to make money, so you need to be aware of how much a loan can cost you. A payday loan is a financial business deal in which one party the lender i.e. financial institution, payday loan lender etc. agrees to give a borrower a certain amount of money with the prospect of total repayment. The specific terms and conditions of a loan are administered in the form of a contract.
The lender will ask for interest payments in addition to the original amount of the payday loan in return. The borrower must agree to the repayment terms and conditions, which will include the money owing to the lender, interest rate and the due date of repayment. Lenders will charge financial penalties for missed or overdue payments.
A payday loan has costs such as interest payments and finance charges this is why many borrowers avoid applying for a loan i.e. payday loan until it is absolutely necessary. Purchasing a new house or auto almost always necessitates some form of financial loan, whether it is a mortgage, auto loan or payday loan. Financing school also requires a federal support student loan. Interest rates on these types of loans can be fixed at the time of the application or may vary according to the federal prime interest rate. Where as with a payday loan the interest rate can vary from payday loan.
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